Right to enforce an “in rem” claim is not lost where the claim is issued after the court has ordered the sale of the vessel

Cargo Interests began proceedings in the U.S. against the Defendant former owner of the M/V SANKO MINERAL for breach of a contract of carriage. The bill of lading under which the claim was brought incorporated the terms of a charterparty which contained a time bar of 12 months from discharge of cargo.

The Defendant entered reorganisation proceedings in Tokyo, which were recognised by the English court under the Cross-Border Insolvency Regulations 2006. Cargo Interests submitted a claim in the reorganisation proceedings.

An in rem action was issued in the English Admiralty Court by the Claimant bank in respect of a mortgage on the vessel. The Court ordered the sale of the vessel, and that any party with a claim in rem should apply to the court to commence the claim within 60 days. The vessel was sold, and the proceeds paid into court. Within the 60 day period, Cargo Interests applied for permission to commence an in rem claim, and obtained a caution over the sale proceeds.

The Defendant’s trustee applied for the caution obtained by Cargo Interests, and the payment out of the sale proceeds, to be struck out or withdrawn. They argued that Cargo Interests’ claim was time barred, because arbitration had not been commenced within 12 months of discharge. Further, they argued that because Cargo Interests had not issued an in rem claim before the vessel was sold, they could no longer enforce that claim. The basis for this argument was s.21(4) of the Senior Courts Act 1981, which states that when an in rem action is brought, the person liable in personam must be the beneficial owner of the vessel.

Judgment

The Court held that Cargo Interests had not lost their right to enforce their in rem claim, even though the claim was issued after the sale of the vessel had been ordered. The claim could be enforced against the sale proceeds, provided the person liable inpersonam was the beneficial owner of those proceeds. It is an established principle of Admiralty law that when a vessel is sold by the Admiralty Court, rights in rem are transferred to the sale proceeds.

However, the Court also held that Cargo Interests’ claim for breach of the contract of carriage was time-barred. Their claim could not be “resurrected” by compliance with an order to submit a claim in rem, if by that time it was already barred as a matter of contract. Nevertheless, because the reorganisation was ongoing in Tokyo, it had been recognised as foreign main proceedings, and Cargo Interests maintained that they could make good their contractual claim in those proceedings, the Court was only willing to order payment out of the sale proceeds on terms that the trustee keep them in a separate account and hold them to the order of the Tokyo court.

Comment

Insolvency of vessel owners remains a matter of great concern to the shipping industry. Vessels, and the proceeds of any sales, will be key targets for creditors. This case is a useful reiteration of the longstanding principle that rights in rem against a vessel are transferred to the proceeds of sale when that vessel is sold. It also makes clear that taking steps to enforce such a claim is not sufficient to stop time running in respect of a contractual claim. Separate action must be taken in accordance with the relevant contractual provisions (for example, commencing arbitration) in order to prevent a claim becoming time-barred.